Ask your favorite state or local officials if they have seen this statement: “A contribution rate of 16.29 percent of active members’ compensation for the 2014/2015 fiscal year would be needed in order to keep the anticipated accrued liability payment within 30 years in accordance with GASB Statements 25 and 27.”
It’s at the bottom of Page One of the annual financial valuation of PERS, the state retirement system.
Last year PERS adopted a funding policy “aimed at stabilizing the employer contribution rate” and said that rate would be fixed at 15.75 percent for 30 years.
Looks like 15.75 percent isn’t high enough…and sticking with that rate will make PERS noncompliant with accounting rules.
PERS also said last year, “The funding policy also establishes a goal for the System to be more than 80.0 percent funded by 2042.”
However, the annual financial valuation showed PERS’ funding level dropped to 57.7 percent In 2007 the funding level was 73.7 percent It has dropped every year since.
Said another way, in 2007 PERS’ unfunded liabilities totaled $7.07 billion. Today they total $15.05 billion.
And this was supposed to be a good year for PERS. After all, investment earnings averaged over 13 percent for the year. So, why the negative results?
Well, it was a number of things.
First, the number of active employees decreased (567) while the number of retirees increased (3,385). Fewer employees paying in to support more retirees drawing out undermines the system. In 2004, there were 2.5 workers for each retiree. That has trended down to 1.8 today.
Second, average payroll decreased .2 percent. PERS’ funding formula depends on average payroll increasing at least 4.25 percent each year. (The higher the payroll the more the contribution rate generates.)
Third, despite contribution rate hikes, PERS continues to pay out more each year in benefits and administrative expenses than it receives in contributions. The shortfall this year was $707,632. This trend puts stress on asset growth. Indeed, since 2007, actuarial assets have increased just $0.7 billion or 3.5 percent while liabilities have increased $8.65 billion or 32.2 percent.
While retirees and, therefore, legislators continue to ignore PERS’ declining financial viability, credit rating agencies do not. Fitch Ratings just downgraded Mississippi’s bond rating outlook from stable to negative in part because of PERS’ growing unfunded liabilities.
After you ask your favorite official about PERS’ latest financial dilemma, ask them what they propose to do about it.
Increasing revenue through higher contribution rates and better investment earnings were not enough to right the ship. Perhaps something should be done to reduce the ever-growing expenditure side too.
“The fact our pension funding levels are weak and getting weaker, that’s a real issue,” said Lt. Gov. Tate Reeves. “But heretofore, there has not been the political will to do anything about it.”
Bill Crawford (firstname.lastname@example.org) is a syndicated columnist from Meridian.